Thursday, March 05, 2009

On Tuesday, I had a fascinating conversation with a mortgage broker who put a new spin on a very old story. For legal reasons, I'm not going to name names, but people in Ottawa might guess the subject of the conversation.

Way back in the early days of my business, in the late 1980s, an Ottawa mortgage broker revolutionized the industry with aggressive and creative marketing. He changed the idea of using a mortgage broker from a place of last resort, to a mainstream alternative to the banks, who then controlled the entire market.

His advertising account represented a prime 'catch' and I knew my business had reached a level of credibility when he called to start booking double-page spreads.

Then, as the 80s real estate boom turned to bust, his business crumbled, and failed. He went bankrupt. Investigators discovered that he had pooled mortgages, and paid out mortgage lenders with bad mortgages from funds earned through good mortgages. Facing several counts of fraud, he pleaded guilty and went to a minimum security federal prison. (As this drama unfolded, someone slipped a brown envelope under my door with his personal tax return for the previous year, showing he had reported a rather handsome income -- but clearly he wasn't evading his taxes!)

I decided to arrange an interview with him in prison, and after securing the necessary clearances, headed to the pen. The interview proved to be both fascinating and disturbing. My sixth sense told me he wasn't all right -- there seemed to be something odd in his remarks which spoke of guilt rather than innocence.

I wrote the story, and then forwarded it to him through the prison's correspondence unit for his review before publication. In perhaps the most memorable call in my publishing career, I received a call from the prison warden, who then put the jailed mortgage broker on the line to me. He pleaded with me not to publish the story; he said he accepted the interview as a friend not as as journalist. Weighing everything in total, I spiked the story. But I never changed my opinion about his guilt or innocence, until Tuesday.

The mortgage broker I met this week, who had worked the convicted broker but after the crisis set up his own business, has remained a part of the community for the past 20 years. He has a positive reputation and is well respected.

"Look, if (name of his former employer) was guilty, why did it turn out that after all the receivers went through the books, and all the legal and accounting fees were paid, that most people received most of their money back," he said. "How could this represent real fraud?"

That remark reminded me of the rather strange call I received from the mortgage broker's receiver about five years ago -- 15 years after the failure of the original business -- saying they had a cheque for me representing the final asset distribution. It took some effort to cash the cheque; it was in the name of a former business which had been merged into two successive corporations, but it is the first time as an unsecured creditor in a bankruptcy I had received so much money on such an old account.

The mortgage broker gave an explanation of why he thought his former employer had been brought to what he feels is unfair justice. I won't describe the details because they would put another person, with a very good reputation in the community as well, under a negative spotlight.

I haven't been able to verify the facts of this story but I share it here to show the complexity of reputation, business truth, loyalty, and impressions.

Did I unfairly draw conclusions about someone because of my first-person jailhouse interview; or did I see truth first hand (after all, I was there -- this isn't some third-hand observation?)

Did the person I met on Tuesday show what loyalty and friendship is all about; sticking through thick and thin, and believing in the integrity of his friend and former employer, regardless of the circumstances (or did he see something that I never appreciated in the former mortgage broker?)

How much truth and myth are combined in our collective businessknowledge and history; and how can we gain an understanding of what is right, effective, and honorable?

This is one of those stories where you cannot find a black-and-white solution; I share it with you to show the questions that sometimes make business principals and ethics truly murky and complex.

2 comments:

Very interesting article. It sounds like a microcosm of what went on in the US. But here he might not have been handed striped pjs and soap on a rope. He may have gotten away with it or maybe even given a big check from uncle Sam. I'm no judge, but my sense is if you rob a bank and then come back the next day to give the money back...you still committed a crime. And you should be subject to whatever punishment Canada gives out... (maple syrup boarding?)

Matt, of course most cons deny they are guilty -- or rationalize they are right (or they don't care, whatever).Seems in the U.S. the criminality has been magnified but efforts to punish the wrongdoers, if fully implemented, might push the recession to even deeper levels.

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